As far as I know, that isn't true. The issue is not the limitations of the disc, but to do with the fact that -
a) Bits of the executable don't look for files, but go to particular sectors and tracks expecting data, so we'd have to disassemble parts of the executable and change these locations, and
b) We can't create PSOne data lookup-tables / filesystem data from scratch.
If you know differently, though, I'd be very interested to hear how I could exceed the limits of the KERNEL.BIN. I *have* heard about attempts in the past to get PSOne homebrew up and running without the Net Yaroze framework - presumably, *someone* must be able to author bootable Playstation discs.